Update for Contractors on the Presentation and Disclosure of Retainage

Earlier this year, the Financial Accounting Standards Board (FASB) issued a staff educational paper to address questions related to applying revenue recognition guidance for the presentation and disclosure of retainage (or retention) on construction contracts in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). The educational paper, which does not change or modify existing GAAP, was developed in response to feedback from private company stakeholders, including the Private Company Council (PCC).

Previously, the FASB had proposed an Accounting Standards Update (ASU) that would have introduced a private company accounting alternative, allowing entities to present gross retainage and contract liabilities on the balance sheet. However, at its March 6, 2025, meeting, the PCC elected to remove the proposed ASU from its agenda and instead move forward with issuing the aforementioned staff educational paper.

The educational paper outlines the presentation and disclosure requirements under GAAP about contract assets, including retainage, and contract liabilities applicable to construction contractors. It also clarifies acceptable presentation approaches and provides practical examples illustrating how retainage may be reported in a company’s financial statements.

The most important clarification made within this publication is that contract assets and liabilities must be presented on a net basis for each individual contract. As a result, when a contract is in an overbilled position and includes outstanding retainage, the overbilling must be presented net of the retainage on the contractor’s balance sheet. This presentation will not affect working capital, owner’s equity or profit and loss.

Click here to access the FASB Staff Education Paper

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Contributing Author: Benjamin A. Sumner, CPA, is an audit partner with more than 15 years of experience providing audit, accounting, and advisory services to a wide range of privately held businesses. For questions related to this topic, contact Ben at bsumner@dmcpas.com or (315) 472-9127.